The term ‘equity release’ is widely used and often misunderstood, and this fundamental lack of understanding can prevent qualifying home-owners from leveraging this to their financial advantages.
In simple terms, equity release is a method of unlocking the value of your property and turning it into a cash lump sum, with various policies and schemes available to enable you to achieve this objective.
But what are the benefits and pitfalls of this, and in what instances can it be a good option for home-owners?
Why Would Your Pursue and Equity Release – and What are the Pitfalls?
The obvious motivation to seek out equity release is that it frees up some of the value of your home in the form of a large cash sum, rather than keeping this locked away in brick-and-mortar.
This option has unsurprisingly become increasingly popular in recent times, as the value of UK homes continues to soar thanks to a dwindling property supply and the provision of cheaper and more accessible mortgages.
While these factors have combined to create a perfect storm for equity release demand in 2020 and 2021, there are pitfalls to this type of policy. For example, equity release doesn’t pay you the full value of your home, meaning that you’ll receive considerably less than you would from selling the property on the open market.
This can also impact the value of any future estate that you intend to leave to beneficiaries, so it’s worth considering this before pressing ahead.
Some may argue that there’s also a stigma associated with equity release, as it’s often perceived as an option for people who have mounting debts or want to avoid foreclosing on their home. This is largely misplaced, however, while it fails to understand the nuance of equity release and its popularity amongst older home-owners.
What’s the Main Demographic for Equity Release?
As we’ve already touched on, equity release is commonly aimed at older home-owners, which should come as no surprise given the conditions that enable you to apply for this type of policy.
More specifically, you have to be over 55 to apply for an equity release, so this option is simply unavailable for younger home-owners regardless of their personal circumstances.
In terms of the popularity of equity release amongst this demographic, a recent survey has revealed that up to 90% of customers would actively recommend getting an equity release to others.
The study also discovered that £32.6 billion of property wealth has been released to date, with 557,000 customers benefiting directly from the award of lump cash sums.
This is a sizable sum, and one that has provided a considerable boost to the wider UK economy and the housing market in addition to the immediate beneficiaries who own real estate.
These statistics seem to reaffirm the core benefits of equity release, from the freeing up of crucial funds to the ability to provide cash and financial security to your family.